Seagate Acquires LSI Assets to Address Flash Market

TORONTO — Seagate Technology is looking to ramp up its entrance into the PCIe market and expand its SSD controller capabilities by acquiring assets from Avago Technologies.

The companies jointly announced Thursday they had entered into an agreement that will see Seagate acquire the assets of LSI’s Accelerated Solutions Division (ASD) and Flash Components Division (FCD) from Avago for $450 million in cash. The deal is expected to close in the third quarter of 2014. Avago announced late last year its intent to acquire LSI Corp. for $6.6 billion in cash and loans, to create a larger, broader communications chip designer. The deal received positive reaction from Wall Street.

Seagate was not available for an interview at press time, but in a statement said the acquisition would provide it with enterprise PCIe Flash and SSD controller capabilities to address the growing Flash market, including the high-growth cloud and hyperscale markets that have been the focus of LSI’s ACD business with its enterprise-grade PCIe Flash. The FCD business includes the SandForce SF2000 and SF3700 controller products. Seagate said it expects the combination of its enterprise SSD product line and these SSD controllers to generate revenues of at least $150 million in fiscal 2015, and that the operating margin contribution from its SSD business will be neutral to positive in fiscal 2016 and beyond.

LSI/Avago’s SandForce Controller

In an email interview with EE Times, Jeff Janukowicz, research director for SSDs and enabling technologies at IDC, said Seagate is looking to position itself for long-term success in a transforming storage industry, having expressed a desire for some time to provide customers with a broad range of storage solutions: “While Seagate has had internally developed SSD solutions for a number of years, it has yet to gain any significant traction in the market.”

Janukowicz says the acquisition makes strategic sense to jump-start business and helps strengthen Seagate’s storage strategy by providing it with established enterprise PCIe Flash SSDs and SSD controllers that complement its existing HDD business.

Western Digital, Seagate’s main competitor in the HDD segment, has already made a string of acquisitions to bulk up its Flash business, including Virident, sTec, and Velobit, placing them in its subsidiary HGST’s Intel-based Ultrastar SSD business. Seagate’s primary Flash product was its Pulsar SSD line, but through the LSI acquisition it will have a line of Nytro PCIe Flash, MegaRAID cards, and SandForce controllers.

Joseph Unsworth, research VP for NAND Flash and SSDs at Gartner, says it was already common knowledge in the industry Avago was shopping around its Flash business. He notes Seagate was an investor in SandForce when it was scooped up by LSI in 2011, and also had a stake in Virident before Western Digital acquired it: “Seagate really needed to beef up its Flash portfolio, filling the hole left by Virident being bought by WD.”

Unsworth says Seagate has recognized it has to play in the SSD space, where it’s rather a small player. While it has been vocal about its hybrid SSD drive, he says, its efforts to provide SSDs in the enterprise space have not seen a great deal of traction. The assets from LSI should round out Seagate’s portfolio to be more appealing to datacenter customers, he told us, and allow it to push into the PC SSD space.

Seagate has its work cut out for it, because while SandForce’s controllers have a good reputation in the market, there have been product delays, says Unsworth, and there has been uncertainty around LSI’s Flash business, including the SandForce product line, since Avago announced the LSI acquisition in December, a deal that just closed. “This is something Seagate is going to have to fix, as well as cultivating existing SandForce customers and assuring them of continuity of supply.”